The Commonhold and Leasehold Reform Bill proposes to cap ground rents at £250 per year, reducing to a peppercorn after 40 years, which marks a fundamental shift in the value and function of residential freehold investments. Ground rents have long provided investors with a dependable income stream, often forming the core value of ground rent portfolios. Under the new regime, (save where ground rents are currently below £250 pa and won’t increase above that figure by way of stepped or index linked increase or review) that income will diminish significantly, before disappearing altogether after 40 years.
For existing investors, this raises immediate concerns around valuation. Portfolios weighted towards rent yield rather than management income or long‑term capital value will be particularly exposed. Where debt or financial covenants rely on historic ground rent levels, lenders may also seek to revisit their positions, potentially triggering refinancing conversations. The reforms may further tip the balance in favour of leaseholders pursuing enfranchisement, as the erosion of the freeholder’s income makes acquisition less costly and less commercially attractive for landlords to resist.
Prospective investors also face a changed landscape. Residential freeholds will no longer operate as income‑producing investments but instead function largely as administrative ownership structures, with limited financial return beyond service charge recovery or any latent development value. Investors will need to assess carefully whether the remaining rights and responsibilities justify acquisition at all. Stripping landlords of rental income could mean some landlords cannot afford or are disincentivised from carrying out landlord functions altogether. This could ultimately harm residential tenants who depend on landlords to carry out essential management and insurance functions.
If the Bill becomes law, landlords of long residential leases will also lose their ability to terminate leases through forfeiture. Instead, a new lease enforcement regime will replace that right. Although forfeiture is often criticised as draconian, it is an important tool that landlords rely on to ensure tenants comply with their lease obligations.
The Bill aims to set the groundwork to end the creation of new leaseholds so that all future developments are instead sold as commonholds, and to make it easier to convert existing leasehold buildings into commonhold structures. Whilst commonhold addresses some of the issues in the leasehold structure it is not a complete solution. Commonhold relies heavily on unit owners being able to manage the development collectively and there are challenges over what happens if a Commonhold Association becomes insolvent. Many frustrations leaseholders experience with the current system stem from rising service charges, often driven by higher labour and construction costs, and these issues will not be resolved under the Commonhold structure.
The Bill ultimately delivers what successive Conservative and Labour governments have long promised: the steady dismantling of ground rents in residential leases. These reforms represent the culmination of that policy trajectory, shifting value decisively towards leaseholders. Whilst investors have escaped the threat of an all out ban on ground rents, the message is clear, the traditional ground‑rent model is ending, and the long‑term viability of holding or acquiring residential freeholds must now be reconsidered in light of this permanent loss of income.
Given the government has already defended a legal challenge from landlords to the reforms introduced under the Leasehold and Freehold Reform Act 2024, it is likely the new Bill will attract similar scrutiny. Several measures under the 2024 Act are still not in force because an appeal is anticipated, highlighting the appetite among landlords and investors to contest reforms that threaten their income and operations.
